Unlike stocks and bonds, real estate can require large amounts of capital to invest into. Before entering the market and risking your hard-earned capital, you should prepare an entry and exit strategy. Continue reading to find out the 5 real estate exit strategies for investors.
How to Choose the Right Exit Strategy
How do you know what exit strategy is best for you? Pay attention to these qualities when deciding:
- Purchase price
- Property value
- Supply and demand
- Location of property
- Time to close
- Short and long-term goals
- Condition of the property
- Experience level
Types of Exit Strategies
One of the most popular exit strategies in real estate is to flip a property. If you’re confident the renovations will maximize your after-repair value, then flipping is the right choice for you. This technique takes plenty of planning, as it takes an experienced real estate investor to carry out a successful flip. You will need a team of experts to help sell your home like a real estate agent and a trustworthy contractor to get the job done. Flipping a house can lead to great profit margins, but it will require a lot of planning and expertise. Rehabbing a home allows you to sell at full market value, which maximizes your profits. This real estate exit strategy is best for investors who have the ability to rehab their properties themselves to capture more value.
Seller financing is when you act as a “bank” and finance payments for your purchaser directly instead of using a financial institution. This exit strategy is done when an investor is looking to leave the market but still wants to maximize profits as much as possible. Seller financing allows you to generate more profits through interest payments from the purchaser. You are able to ask for the full list price and grab more capital from interest payments. During times of slow markets, seller financing helps you to sell your property quicker. Seller financing offers tax benefits because you are able to claim the profits year over year instead of claiming the entire profits at once. You can spread out your tax liability when using seller financing.
Similar to seller financing, rent-to-own is one of the most used real estate exit strategies for investors that need to sell their property but still want monthly cash flow. The difference between seller financing and a rent-to-own exit strategy is that the purchaser is not obligated to purchase the property outright at the end of their contract. Renting a property allows the buyer to see if they like the property before fully purchasing it. Purchasers of your rent-to-own property will generally have better upkeep for the property and better relationships with the neighbors as they might eventually own the property. Investors prefer a rent-to-own exit strategy because it brings in more cash flow than selling a property.
Convert to a Short-Term Rental
Depending on your location, signing a long-term lease agreement may not offer the best benefits for your property. Many investors are choosing to convert their properties into short-term rentals in high demand areas. When converting your property into a short-term rental, you should consider the extra maintenance that comes along with keeping up with your short-term rental. It takes a lot of work to maintain a short-term rental property, so consider hiring a property manager if you choose to take this route.
Wholesaling is an exit strategy for a real estate investor that is looking for a quick close. You act as a “middleman” when you wholesale a property to a buyer. You are essentially finding a buyer for a property that is still in the posession of the original homeowner. A wholesaler finds a buyer that is willing to pay more than the previously agreed upon asking price and profits from the premiums. Wholesaling can generate hefty profits without having a lot of upfront cash. This exit strategy is great for both the homeowner and wholesaler.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment